Icahn Might as Well Kiss the Dollar General Merger Idea Goodbye for Now

Carl Icahn can't get a break lately. Almost the moment after he disclosed his large stake in Family Dollar Stores (NYSE: FDO) , the company enacted anti-takeover provisions that basically kept him from buying more. Icahn seems to have had his eyes set on a merger with Dollar General (NYSE: DG) . Talks have apparently gone sour, though, and now a new development is making Icahn's venture into the dollar world even more difficult.

Getting his gold watch On June 27, Dollar General announced that CEO Rick Dreiling will be retiring in May of next year or "upon the appointment of a successor," so it could certainly be much sooner. He's only been at the helm about six-and-a-half years and will be retiring at the young age of either 60 or 61.

Is it a red flag for Dollar General that he's giving his employment the heave-ho? I'd have to go with no. He was and still is a great CEO. The concern for Dollar General shareholders is that Dreiling has big shoes to fill, and the market hates uncertainty. Who knows if his replacement will perform as well as he did?

As the release states, under his leadership sales have soared 80%, store count has increased by 38%, and the company's stock price has exploded to incredible levels. He gave what should be a confidence-inspiring farewell speech that included humbly doling out accolades to others: "I am honored to have had the opportunity to lead such an experienced and talented team." He plans to help search for a new CEO as well as mentor him or her.

Busy schedule It sounds like the only one in this "love triangle" of Family Dollar Stores, Icahn, and Dollar General who is left heartbroken is Icahn. That's not to say that a merger isn't still possible -- some even speculate that Dreiling leaving may open the door to a possible merger if whoever the new CEO is has more aggressive plans for the company.

It's hard to imagine a merger for now, though, with the CEO busy planning his retirement, looking for a successor, and training that successor. Dreiling isn't likely to go through the very complex process of negotiating with Family Dollar Stores, then merging and integrating all just before he takes off and leaves it all in the hands of a new CEO who will have enough to do regardless.

Source: Family Dollar Stores.

Family comes first Will Dollar General's new CEO want to pursue a merger with Family Dollar Stores right off the bat? Again, it is difficult to imagine. It may very well be the right move for both companies, however, since both likely have a lot of duplicate overhead that could be eliminated.

The problem is that the overhead that may be eliminated is the management team of Family Dollar Stores. Icahn stated in a letter to the company that was filed with the SEC in June that he and Family Dollar Stores have a "strong difference of opinion as to the future of our company."

Icahn added that "it is imperative that Family Dollar be put up for sale immediately." If Icahn is wedded to a sale to Dollar General, "immediately" might be an issue, as Dollar General's CEO seems to be busy with other plans.

Don't hold your breath for a Family Dollar Stores and Dollar General merger anytime soon. Don't be surprised if Icahn soon throws in the towel and exits his position as well.

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I bought FDO in April as an addition to my long term dividend growth portfolio as it was at its 52 week lows. The idea was to add to a basket that would do well in a bear play. FDO was also a dividend aristrocrat. Thanks to Icahn, the stock appreciated by around 20% within a few weeks. I felt I should just sell and get five years worth of dividends in a very short span and move that money somewhere else. That I did and bought TWX after the TIME split instead. In my analysis, TWX has growth potential, a history of raising dividends, a fairly valued price to earnings ratio and low payout ratio. I felt this was the perfect stock to take over FDO's place.